Keith Rankin: An American-Pacific Commonwealth?

An American-Pacific Commonwealth?

Keith Rankin, 12 July 2001

Former Canadian
Prime Minister Brian Mulroney wants New Zealand to join the
North American Free Trade Agreement (Nafta). The reality is
that we are in many respects already an economic province
of North America. That need not be a bad thing. We need to
reflect on what being an economic province really means,
and on how to ensure we get the full value of the
relationship.

Unfortunately Mulroney's trip (which has
coincided with that of Canadian anti-globalisation activist
Naomi Klein, author of No Logo)
has done little more (in the media at least) than arouse the
intransigent protagonists of the free trade versus
anti-globalisation stand-off.

Free trade can be both good
and bad; the best policy mix depends on prevailing national
and international contexts. Free trade in some
circumstances can be a "first-best" policy. In other
circumstances it is a distant "third-best".

There are a
lot of paradoxes associated with trade policy. World trade
expanded most during two phases of protectionism: 1870s to
1913, and 1940s to 1970s. Further, in each case the
countries whose trade expanded the most were the most
protectionist (USA and Germany in the earlier period; Japan,
Korea and Western Europe in the post-war period). Further,
the most politically persuasive arguments for free trade in
the last two centuries have always been nationalist rather
than internationalist. The United States today (as it
always has) argues on the basis of perceived American
interest, not global well-being.

Likewise 'globalisation'
contains a mixture of positive and negative. The pro's
emphasise the former; the anti's emphasise the latter. They
talk past each other. Mulroney, in a radio interview, said
that the anti-globalisation protestors (who mobilised
through the latest internet and cellphone technology) are
luddites. He waxes
lyrical about Nafta when the gains to Canada and
Mexico, which mainly sprang from the huge growth in the
1990s of the US market, would have occurred anyway.

The
global anti-globalisation protesters share Adam Smith's fear
of business interests conspiring to enserf national
sovereignties. They see multinational corporations exerting
a hegemony over the world's resources, leaving the
increasingly excluded majority of the world's population to
fight each other for the scraps by prostituting their
labour.

All these arguments contain important truths. We
need to synthesise these truths, creating new ways of
interpreting what is going on (and not just
arguing about what ought to be happening), and using these
insights to guide foreign policy.

The classical theory of
free trade accepts that economies (economic nations) do not
necessarily coincide with political nations. The key
classical assumption was that (economic) nations were
characterised by perfect freedom of movement of goods, of
capital, and of labour. The classical economists advocated
perfect freedom of goods between nations, while assuming
that capital and labour could only be employed in their home
nations.

Thus free trade is a state of affairs in which
goods and only goods (and services) are freely exchanged
between nations. The benefit to all nations is that they
use their resources more efficiently by each specialising in
the production of products that their combinations of
resources produces best.

Globalisation is when goods,
services, capital and labour all flow without impediment.
The globalised world is a single (economic) nation.
International trade ceases to exist. All trade is domestic.
What we might still call international trade is really
inter-provincial trade.

The assumptions of classical trade
theory can be taken as definitions of economic nationhood.
A nation is defined not through political sovereignty, but
through the mobility of capital and labour. So the world's
economic nations are the existing zones within which
capital and labour most readily flow.

I believe that we
can divide the world into six economic nations, each
containing between half a billion and 11/2 billion people.
And I believe that the gains of free trade and other
globalising influences can be gained from a world divided
into six economies, while the negatives can be averted by
formalising the subdivision of the world economy into no
fewer than six economic nations.

New Zealand, I would
argue, belongs to an economic nation that I would call
America-Pacific. The boundaries of America-Pacific are close
to those which Brian Mulroney envisions for his beloved
Nafta. (The other five economic nations that I see might be
called: East Asia, China, India, West Asia - Sahara, and
Eurafrica.)

I will use the term commonwealth to mean a
properly defined 'economic nation'. It's usage that is
consistent with that of, for example, the "Commonwealth of
Australia" which formed, 100 years ago, as an economy forged
from six nations. It is not consistent with the [British]
"Commonwealth" that is really an alumnus society for the
former British Empire, and whose members have no unifying
economic ties.

The inchoate America-Pacific commonwealth
includes Australia, Polynesia (except French Polynesia),
Melanesia, Micronesia and possibly the Philippines. There
are a few anomalies, arising from historical colonisation.
Thus French Polynesia, already part of the European Union,
is (economically) in what I have called Eurafrica. (Indeed
it is on account of past European colonisation that
sub-Saharan Africa is a part of the same economic nation as
Europe.) And Israel, economically, belongs with
America.

Capital and labour do flow between the economic
nations that I have defined. But I suspect that the net
flows are quite small. The predominant channels through
which capital and labour flow are, I would argue, within the
nations I have identified. Interestingly, China and India
are comparatively self-sufficient in capital and (more
arguably) labour. Further, I would argue that if capital
and labour flows were confined to these six nations
(something I am not advocating), then the loss of economic
efficiency would not be very large.

So, what does it mean
for New Zealand to be a part of an American-Pacific
commonwealth?

It means that New Zealand is a province of
America-Pacific. It supplies labour to the economic nation
as a whole. In particular, labour is drawn from the
periphery to the centre (essentially the USA). As a result,
capital accumulates in the centre, and is dispersed to the
periphery, to the economic provinces. So the net pattern of
interest and dividend flows is from the periphery to the
centre of the economic nation.

We can see similar
relationships more clearly, by simply observing the way
places like Southland and Hawkes Bay interact economically
with, in particular, Auckland.

Few people would argue
that the freedom of goods, capital or labour between
Invercargill and Auckland should be restricted in any way.
Likewise, it makes no more sense to restrict the freedom of
movement of goods, capital and labour within the
American-Pacific region.

What does make sense instead, is
to consider why Southlanders are not impoverished, despite
their loss of people and the net outflow of interest and
profits. The reason is that taxation and public goods'
provision operate at the national level. Invercargill's
hospital and schools do not depend on revenue raised within
Southland. The investment in human capital that takes place
in Invercargill's schools is funded from throughout the New
Zealand economy, especially from Auckland and Wellington.
So, the fact that many Invercargill-born New Zealanders are
employed productively in Auckland is not an economic loss
to the people of Southland.

We can also think of the
Commonwealth of Australia - a formally constituted
commonwealth - and the fiscal relationship that binds the
state polities into a cohesive nation. On average, people
in Sydney are more prosperous than people in Hobart. But
that relationship of Australia-wide taxation and public
goods' provision acts to ensure that the people of Tasmania
are not exploited, and are able to share broadly in the
Australian standard of living. Tasmania could not have
reaped such gains had she not joined the Australian
commonwealth.

One of the most urgent problems New Zealand
faces today is a lack of trained radiotherapists to treat
cancer patients. The radiotherapists that we train (and
that Australia trains) can be bought by North American
hospitals for prices no Australasian hospital could offer.
Now, if our training institutions received commonwealth
funding (ie from an American-Pacific commonwealth) then we
would be able to afford to both train and more
radiotherapists than we do now, and to way salaries high
enough to persuade most of them to work here.

Any
commonwealth requires some formal structures of governance,
to focus on fiscal matters, defence and a unified foreign
policy. The reason why the world must be divided into more
than one such commonwealth is to ensure sufficient
decentralisation of governance; to prevent the formation of
a world government that could all too easily become the
ultimate tyranny.

The solutions become obvious once we
understand that the New Zealand economy is a provincial
economy within the American-Pacific region. Economic
nations provide collective goods (including social security
if that is a part of their common culture) on a basis of
equality between their respective provinces. New Zealand
could be both contributing to and drawing on the collective
resources of a more formerly defined American-Pacific
commonwealth. That's why we should join Nafta.

Keith Rankin has taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith lives with his family in Glen Eden, Auckland.

Contact Keith Rankin

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